Will All 21 Million Bitcoins be Mined?

The limited supply of Bitcoin (BTCUSD) is one of its most distinguishing features. Other types of money, such as fiat currencies, can be printed at will by central banks, implying that their supply is limitless.

Satoshi Nakamoto, the creator of bitcoin, set a limit of 21 million bitcoins, ensuring that only 21 million will ever exist. These bitcoins are added to the Bitcoin supply at a fixed rate of one block every ten minutes, on average. Furthermore, every four years, the number of bitcoins released in each of the aforementioned blocks is reduced by 50%. By August 2021, there were 18.7 million bitcoins available, with another 2.3 million waiting to be mined.

The supply limit makes Bitcoin scarce and prevents inflation from occurring if the cryptocurrency’s supply were unlimited.

The economics of Bitcoin will change as its supply is depleted. Different members of its ecosystem, such as miners and traders, will have different incentives. Miners, for example, may rely less on block rewards and more on transaction fees to generate revenue and profits. The cryptocurrency’s network will change as well, and its participants will be different from the current ecosystem’s retail traders.

However, given the cryptocurrency’s still-developing ecosystem, it’s difficult to say with certainty what effect Bitcoin’s capped supply will have.

Will Bitcoin’s cap of 21 million ever be reached?

Before delving into the implications of Bitcoin’s 21 million cap, it’s worth considering whether the number will ever be reached. Some analysts believe Bitcoin will fall just short of the 21 million mark, based on the cryptocurrency’s current codebase and mining process.

To summarize, miners “mine” Bitcoin by solving cryptographic puzzles in order to verify and validate a block of transactions in the network. Miners who successfully confirm a transaction block receive block rewards, which are a set number of bitcoins. Every four years, the rewards are halved.

The reward for confirming a block of transactions was 50 bitcoins when the cryptocurrency first launched. It was halved to 25 bitcoins in 2012, and it was reduced to 12.5 bitcoins in 2016. Miners could earn 6.25 bitcoin for each new block in May 2020. Bitcoin miners’ block rewards will be halved every four years until the final bitcoin is mined. According to current estimates, the final bitcoin will be mined in February 2140.

Miners receive bitcoin rewards as part of the Bitcoin mining process, but the reward size decreases over time to control the circulation of new tokens.

The 21 million figure is an “asymptotic cap” on the number of bitcoin in existence, according to Andreas M. Antonopoulos, author of a book about Bitcoin’s workings. 2 In simple terms, this means that, while the cryptocurrency may get very close to the figure, it will never reach it. This is due to the fact that block rewards and Bitcoin supply are never expressed precisely. Bit-shift operators are arithmetic operators used in certain programming languages to round decimal points to the nearest smallest integer. As a result, a total supply of 6.2589 bitcoins will be rounded to the smallest integer, which in this case is 6.

While this simplifies calculations, it results in losses in satoshis, Bitcoin’s constituent units, during each block confirmation. 100 million satoshis equal one bitcoin. According to some estimates, the final bitcoin block will be 6,929,999, and the total supply will be 20,999,999.9769 satoshis at that time. Because bitcoin uses a bit-shift operator system3, its algorithm will round that number down to 20,999,999, leaving the cryptocurrency just short of its target cap of 21 million.

What Happens When Every One of the 21 Million Bitcoins Is Mined?

Because Bitcoin did not reach its planned cap, there is a chance that the cryptocurrency’s network will continue to function for a long time after 2140. There will be no bitcoins issued, but transaction blocks will be confirmed, and fees will become the primary revenue source. Bitcoin’s network may eventually function as a closed economy, with transaction fees assessed similarly to taxes.

Is it possible to receive rewards in satoshis rather than bitcoin? Such a practice is improbable, and it would necessitate a change in the cryptocurrency’s protocol.

However, it is difficult to predict the consequences of Bitcoin approaching Satoshi Nakamoto’s promised total supply. This is partly due to the fact that Bitcoin’s ecosystem is still in its infancy. Although cryptocurrency was designed to be used as a medium of exchange, it has grown in popularity as a store of value—a type of investment asset. Between now and 2140, Bitcoin’s ecosystem and workings could undergo a transformation similar to that which has occurred in its identity.

Although there can only ever be a maximum of 21 million bitcoins, the actual number of bitcoins in circulation could be millions less because people have lost their private keys or died without leaving their private key instructions to anyone.

For example, the cryptocurrency’s blockchain protocol could be changed to allow for more than 21 million bitcoins to exist. Remember that Bitcoin is an open-source cryptocurrency that can be modified to produce hard or soft forks that create new cryptocurrencies or change the way it works. Bitcoin Cash (BCHUSD), Litecoin (LTCUSD), and Dogecoin (DOGE USD) are examples of the former, which have made minor changes to Bitcoin’s source code and created new coins with market valuations in the billions of dollars.

Bitcoin miners are affected.

The most important sources of revenue for miners are block rewards and transaction fees, with the former being more important than the latter in the current setup. Because miners can sell their rewards stash in cryptocurrency markets at high prices, they can cover operational costs and maintain business profits.

When Bitcoin approaches its limit, the reward amounts may not be sufficient to cover miners’ operating costs, let alone generate profits. Bitcoin rewards are supposed to vanish if and when the supply limit is reached.

Transaction fees are expected to pick up the slack in both cases. The amount and mechanism of these fees are determined by the current state of Bitcoin’s network, i.e., whether it is being used as a medium of exchange or a store of value. The former scenario could result in reasonable fees to allow Bitcoin to be used in everyday transactions, whereas the latter scenario would result in miners conducting fewer and more expensive transactions.

Miners forming cartels amongst themselves is another possibility that has been suggested. They may be able to control supply in order to set high transaction fees or a fee amount that ensures a minimum profit margin. Another possibility is selfish mining. Miners work together to hide new blocks and release orphan blocks that have not been confirmed by the Bitcoin network in this type of mining. This practice will delay the production of the final block in the Bitcoin network while ensuring high rewards for new blocks once they are released.

The formation of a cartel of Bitcoin miners is a foregone conclusion. Other commodities with limited or controlled supply already have such groupings. Oil prices, for example, are heavily influenced by OPEC’s production output. A cartel led by mining behemoth DeBeers is said to set prices in the diamond industry.

Impact on the Bitcoin Network

Bitcoin’s network is its most valuable and useful feature. Distributed ledger technology is a technological solution to the time-consuming bookkeeping and accounting that currently characterizes the majority of financial transactions.

Bitcoin’s transaction numbers will skyrocket if it becomes popular as a medium of exchange in the future. There is a good chance that the network will slow down, based on previous experience. This is due to the fact that Bitcoin’s architecture, which relies on a distributed database to store copies of massive ledgers, prioritizes accuracy and integrity over speed.

Layer 2 technologies, such as the Lightning Network, are likely to become responsible for confirming the majority of transactions on its network in such a scenario. As a result, the actual network of the cryptocurrency will only be used to settle large batches of transactions.

Another scenario is that the number of transactions on the Bitcoin network decreases. When Bitcoin becomes a reserve asset, a situation like this could arise. The number of trades involving cryptocurrency will be limited. Large institutional players and established trading firms will replace retail traders and small trading firms, which currently dominate the trading ecosystem. They’ll do fewer, more expensive trades, which will cost them a lot of money in transaction fees from miners.

Bitcoin’s Cryptocurrency Effect

Satoshi Nakamoto, the cryptocurrency’s creator, intended it to be used as a medium of exchange for everyday transactions. However, the network’s transaction fees are high, and processing times are slow. Meanwhile, speculative investors are drawn to its scarcity and rising prices. Their bets on the cryptocurrency roulette wheel have resulted in erratic price swings in the asset class, scaring away serious investors. Regulators have criticized its ecosystem as a Wild West.

Bitcoin may have a more defined identity than it does now by the time the last bitcoin is mined (or close to being mined). Side channels, such as those used by the Lightning Network, may have sped up transaction processing and enabled the network’s use as a medium of exchange. Some countries, such as El Salvador, are betting on this happening and have made bitcoin legal tender.

On June 9, 2021, El Salvador made Bitcoin legal tender. 5 This is the first time a country has done so. Any business that accepts cryptocurrency can use it for any transaction. El Salvador’s primary currency is still the US dollar.

The Office of the Comptroller of the Currency (OCC) letter authorizing the use of crypto as a method of payment in January 2021, PayPal Holdings, Inc.’s (PYPL) introduction of Bitcoin, and Tesla, Inc.’s (TSLA) acceptance of Bitcoin to purchase Tesla cars and solar roofs are the most recent significant events in the United States. In May 2021, Tesla reversed its decision to accept Bitcoin, citing environmental concerns about the resources required for Bitcoin mining.

The rising scarcity of bitcoin’s numbers will have pushed up its price, as well as the value of cryptocurrency markets. When large amounts of capital flow into an asset class, regulators tend to act quickly, and crypto markets and Bitcoin are likely to have fallen under the regulatory umbrella as well. That will be a signal for institutional investors to enter the cryptocurrency ecosystem and provide massive liquidity to help stabilize price swings.

Final Thoughts

The 21 million supply limit on Bitcoin is intended to prevent inflation that would otherwise result from an unlimited supply. However, by making cryptocurrency a scarce commodity, it has inflated its prices.

When Bitcoin reaches its supply limit, miners are likely to shift their primary source of revenue from block rewards to transaction fees. Because of the development of side channels like the Lightning Network, Bitcoin’s blockchain may be limited to confirming large batches of transactions or transactions involving the transfer of large amounts of bitcoins from one blockchain address to another. The identity of Bitcoin as a store of value and a medium of exchange will be more clearly defined than it is now.

However, none of these forecasts are set in stone. It is difficult to accurately predict Bitcoin’s future due to the frantic pace of development in its ecosystem. The protocol of the cryptocurrency, for example, could be changed to allow for the production of more than 21 million bitcoins. It could also fall just short of 21 million.